sole trader vs limited company

Sole traders and private limited companies comprise the overwhelming majority of businesses in the UK. If you are planning to start a profit making business, it is highly likely that you should choose between these two company types. In this guide we will use the term limited company to mean a private limited company. Whilst there are a number of limited company types beyond private limited companies, the term limited company is regularly assumed to mean private.

sole traders assets are not protected

As a sole trader you are the company. That means if the company hits financial difficulties or is sued, so are you

Limited companies are incorporated as independent legal entities in law. This means they are not you, and if they hit financial difficulty or get sued, you are individually protected

protecting my assets is important to me. Maybe I should register a Limited company

sole traders are cheaper and easier to maintain

There are fewer statutory requirements for sole traders to adhere to. Unlike Limited companies they do not have to file an annual return or maintain a company register

Accounting is generally easier and cheaper because sole traders accounts are dealt with by the personal tax return of the owner. Limited companies must submit more detailed accounts

Assuming you have no debts, winding up a sole trader tends to be simpler than with a Limited company, and no information is held on the public register

I prefer to keep things as simple and easy as possible

sole traders can be less tax efficient

Remember we said tax returns were easier? Well this comes at a price. Limited companies accounting is more expensive partially because they have more options when it comes to managing profits and dividends.

Sole traders tend to become less tax efficient as profits grow

I may want to manage my profits more efficiently than a sole trader permits

sole traders can be seen as less credible

Like it or not, Limited companies tend to be viewed as more credible or reputable

This can help when it comes to obtaining credit and winning contracts with larger businesses

Credibility is essential in my line of work

sole traders can be harder to sell

Sole traders are people as well as companies. It can be harder to quantify where the person stops and the business starts

Often accounts, license and contracts name the individual sole trader so these can be hard to transfer

Limited companies are entities in their own right so as long as you own the shares, you own the entity. This is easier to quantify

I don't plan to sell my company, so it's not an issue for me

sole traders are more private

Sole traders only disclose their private information including turnover and ownership to HRMC

Limited company information is held on the public register indefinitely and is available to anybody.